How GST LUT affects Invoicing and Accounting?

How Does GST LUT Impact Invoicing and Accounting?  


GST LUT has a significant impact on invoicing and accounting, as it changes the way exporters calculate and report their exports. The government issues exporters a GST LUT (Letter of Undertaking), which allows them to export GST-free goods and services. This means that as long as specific requirements are met and an LUT is issued, exporters do not have to pay GST on the goods or services exported. In this article, we have discussed the various impact of GST LUT on invoicing and accounting.

What is LUT in GST?  

GST LUT (Letter of Undertaking) is a document that is issued to registered taxpayers who are engaged in the export of goods and services. The LUT is a formal commitment made by the exporter to adhere to all GST-related duties and to avoid paying GST at the time of export of the goods or services. The LUT is a declaration that the exporter accepts responsibility for adhering to all laws and rules governing the export of goods and services under the GST regime.

How Does GST LUT Impact Invoicing and Accounting?  

It is very important to understand how GST LUT impacts invoicing and accounting. Here are a few points to keep in mind:

  1. Exemption from GST: The main effect of GST LUT on the calculation of invoices is that it relieves the exporters of the liability to pay GST on exports and consequently comes with being able to send invoices to foreign customers without having to collect any VAT on their exports of goods and services.

  1. Saves transaction costs: Frequent exporters benefit greatly from reporting LUT online, as refunds are more time-consuming than any other method. While a large amount of capital is reserved to compensate the deserving. Using this approach, capital can be used for other important needs. It reduces the cost of logistics.

  1. Accurate reporting: Exporters must also ensure that their GST returns appropriately reflect their shipments. They must properly disclose the value of their exports and the HSN (Harmonized System of Nomenclature) codes that must be used to describe them. This is necessary to ensure that all applicable laws are followed, regardless of fines or penalties.

  1. Maintaining proper records: Exporters should maintain proper records of exports. This includes detailed records of exported goods and services, as well as invoices and other supporting documents. Proper record-keeping is essential to ensure that exporters comply with all relevant laws and regulations.

  1. Valid for the entire fiscal year: The promissory note is valid for the entire fiscal year from the date of submission. Unlike the re-export route, the exporter does not have to go through the formalities of each export. It is important to regularly verify the LUT to ensure that it is still valid. If the LUT is not renewed before its expiry date, the exporter cannot continue to export goods or services without paying GST, which may disrupt their business activities. Therefore, exporters have to renew their LUT well before the expiry date to avoid any problems.

  1. Renewal: To overcome any disruption in logistics operations, exporters should ensure timely renewal of their LUTs, which are only valid for a certain period under the Goods and Services Tax.

What is the Difference between GST LUT and Bond?  

The main difference between a GST LUT (letter of undertaking) and a bond is the way they act as a mechanism for exporters to meet their tax obligations Here are the main differences:




A LUT is a written commitment by the exporter that they will meet their tax obligations by not issuing the bond



A bond is a financial instrument that acts as a trust for taxes and fees



This is another form of bond, available to certain groups of exporters

The exporter has a legal obligation to pay the tax within a certain period

The investor can go abroad tax-free by submitting a LUT and issuing a bond

Exporters may be required to provide a bond if they do not qualify or select the LUT facility

The LUT is valid for the fiscal year and must be renewed for each subsequent year

The bond is backed by a bank guarantee and ensures that the government will be charged for any potential taxes



In conclusion, GST LUT has a positive impact on invoicing and accounting as it facilitates the export of goods and services by allowing exporters to pay GST on their exports, reduces working capital requirements, and simplifies record-keeping and reporting requirements.


Suggested Read: All You Need to Know About GST LUT: Understanding and Usage

Categories: GST GST Return
Dharmik Joshi: Dharmik Joshi is a student currently pursuing Business Management and Administration. He is passionate about presenting his thoughts in writing. Alongside his academic pursuits, Dharmik is actively involved in various extracurricular activities. He enjoys communicating with people and sharing things with others. He is more focused on the learning process and wants to gain more knowledge.
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